Bad faith claims in New York are tricky. Often, the claims get thrown out in the pleading stage, with New York courts declining to recognize a broad, independent tort for an insurer’s bad faith claim handling. Instead, they tend to treat bad faith as part and parcel of the broader contractual claim, frequently dismissing an implied covenant claim as duplicative.
However, a recent Southern District ruling demonstrates such claims are not always doomed to dismissal. In Renergy, Inc. v. Mt. Hawley Insurance Company, a magistrate judge granted a policyholder leave to amend its complaint to clarify the allegations in its bad faith cause of action. 1
In doing so, the court determined that the proposed amendment was not futile, as the insurer alleged, but instead stated a viable and legally distinct bad faith claim under New York law.
The case stems from a third-party claim for reimbursement under an environmental liability policy issued by Mt. Hawley to Renergy. Renergy sought leave to file an amended complaint adding a bad faith claim, alleging that Mt. Hawley adopted and retained a third party’s conclusions without sufficient independent analysis, issued duplicative and burdensome information requests, and significantly underpaid the claim. Renergy also wanted to claim consequential damages, including vendor liens, late fees and penalties, and lost opportunities.
Mt. Hawley opposed the amendment, arguing that the amendment was futile because it was duplicative and because bad faith for claims handling in New York is limited to first-party claims. The court disagreed and permitted the proposed amendments.
In doing so, the court made a few significant determinations. First, it rejected the carrier’s attempt to categorically limit bad faith to first-party claims. Second, it found that Renergy’s bad faith claim was not duplicative of its contract claim because it alleged more than failure to pay and instead enumerated various claims handling specific failures independent of the denial, overcoming a central obstacle in New York bad faith litigation. 2
Practically speaking, Renergy gives policyholders a useful pleading roadmap for bad faith claims. A New York bad faith claim should identify claim handling conduct separate from the coverage breach, explain how that conduct frustrated the purpose of the insurance policy, and allege concrete consequential damages beyond the withheld benefits. It also gives policyholders legal support to oppose the inevitable Motions to Dismiss their bad faith claims.
To be clear, Renergy is not a merits ruling, and it does not find that Mt. Hawley actually acted in bad faith. But it is also more than a routine amendment order, as it rejects several common insurer defenses to New York bad faith claims. In a jurisdiction where policyholders have often struggled even to plead bad faith beyond breach of contract, Renergy is an encouraging development.
1 Renergy, Inc. v. Mt. Hawley Ins. Co., No. 25-CV-5073, slip op. (S.D.N.Y. May 1, 2026).
2 See also Grey Rock Gathering & Mktg., LLC v. Liberty Mut. Ins. Co., No. 23 Civ. 3347, 2024 WL 3520470, at *6 (S.D.N.Y. July 23, 2024).